How Much Water Went Into Growing the Food We Eat?

The rains bypassed sunny California in January and February 2020, encouraging talk of another drought. California’s last drought was only declared over a year ago, after two wet winters in a row filled the states reservoirs. To cope with the last drought, instead of building more reservoirs and taking other measures to increase the supply of water, California’s policymakers imposed permanent rationing.

This predictable response ignores obvious solutions. Millions of acre feet of storm runoff can not only be stored in new reservoirs, but in underground aquifers with massive unused capacity. Additional millions of acre feet can be recovered by treating and reusing wastewater, and by joining the rest of the developed nations living in arid climates who have turned to large scale desalination.

All of this, however, would require a change in philosophy from one of micromanagement of demand to one that emphasizes increasing supply. To understand why a focus on increasing supply is vastly preferable to reducing demand, it helps to know just how much water California’s urban residents consume compared to other users.

As a matter of fact, the average California household purchases a relatively trivial amount of water from their utility, when compared to how much water they purchase in the form of the food they eat. For this reason, reducing residential water consumption will not make much of a difference when it comes to mitigating the effects of a prolonged drought.

To illustrate this point, it is necessary to determine just how much water […] Read More

California Cities in Critical Condition

The specter of California’s cities and counties becoming insolvent is nothing new. Three major California cities have already declared bankruptcy, Vallejo in 2008, Stockton and San Bernardino in 2012. In October 2019, the California State Auditor’s Office reported on the fiscal health of 471 California cities.

On what the California State Auditor’s office describes as a “Local Government High Risk Dashboard,” they identified 18 high risk communities: Compton, Atwater, Blythe, Lindsay, Calexico, San Fernando, El Cerrito, San Gabriel, Maywood, Monrovia, Vernon, Richmond, Oakland, Ione, Del Rey Oaks, Marysville, West Covina, and La Habra.

This so-called “dashboard” includes data for all the 471 cities on financial variables such as liquidity, debt, reserves, pensions and other retirement benefits. It also provides an excellent map. On this zoomed in segment, the financially troubled cities of (from north to south) Richmond and El Cerrito (contiguous), and Oakland can be seen highlighted in red.

Southern California also has its share of financially troubled cities, as shown on the next map segment taken from the California State Auditor’s dashboard. Clockwise, starting from the top, the most financially endangered cities are Monrovia, West Covina, La Habra, Compton, Vernon and Commerce (contiguous), and San Gabriel.

Back in October 2019 when the California State Auditor warned Californians about 18 cities in immediate financial peril, the overall economic situation looked very different than it does today. And at that time, articles that reported on the auditor’s warning published by Reason, Governing, […] Read More

Sustainable Megacities

Modern urban centers around the world now have neighborhoods that house well over 100,000 people per square mile. The Choa Chu Kang district in Singapore, defined by boulevards lined with 10 to 12 story mid-rise residential buildings, has a population density of more than 125,000 people per square mile. The entire borough of Manhattan has an average population density of more than 70,000 people per square mile, with far higher densities in areas of midtown and lower Manhattan.

According to a 2018 report released by the United Nations, today 55 percent of the world’s population lives in urban areas, a proportion that is estimated to increase to 68 percent by 2050. At the same time, the United Nations projects the global population to increase from 7.8 billion today to 9.7 billion by 2050. These projections lead to a surprising calculation: the absolute number of people living in rural areas is expected to decline, from 3.5 billion today to only 3.1 billion in 2050.

What should not be surprising by now is that people around the world, voluntarily and inexorably, are migrating from rural areas to cities. But the corollary effect is relatively unheralded; that around the world, open land is slowly depopulating. For the most part, this is happening absent government coercion. It flies in the face of the conventional wisdom—heard endlessly in the United States—that we are running out of open space. We aren’t.

If we have a sustainability challenge, it is not […] Read More

Government Pensions Are Dividing Americans and Damaging the Economy

Now that financial markets around the world are experiencing a long-overdue correction, the best we can hope for is that we hit bottom before a deflationary cascade causes a worldwide depression. Those economists who believe in the long-term debt cycle may claim that this time the end has arrived, and they may be right. COVID-19, oil price wars, traders and investors hating Trump—these are just pinpricks. This bubble has been inflating for decades.

There have been plenty of warnings. Interest rates at near zero in the United States and actually negative in European nations. Record borrowing by the federal government, and, possibly worse, record levels of consumer debt. Corporate borrowing to buy back stock instead of invest in R&D and plant modernization.

In January 2000, at the peak of the internet bubble, total credit market debt in the U.S. was $27.8 trillion. By October 2007, at the peak of the housing bubble, total debt had climbed to $51.4 trillion. As of October 31, 2019, the most recent period for which data is available, total debt had climbed to $73.4 trillion.

Debt accumulation is not a sustainable way to stimulate growth. At some point, there is not a mere “correction,” such as what was seen in 2000 and 2008, but a fundamental restructuring of the financial economy of nations, such as happened in the 1930s. Has that reckoning arrived?

Either way, as of close on March 12, the Dow Jones had given up nearly three years of […] Read More

Public Safety Compensation and Public Safety

Public sector unions are by far the most powerful special interest in California. And they are united in their goal to pay themselves as much or more than public agencies can afford, which shields unionized public servants from the worst effects of the laws (which they almost always support) that have made California’s cost-of-living the highest in the nation. But there are also significant differences between the various public sector unions in California.

Whatever else one might say about public safety unions, they have not undermined the quality of their profession. To the extent public safety in California is compromised, for the most part that is caused by policies the public safety unions unsuccessfully opposed including Prop. 47, Prop. 57, AB 109, and AB 953.

This is in sharp contrast to California’s teachers unions, which by their opposition to charter schools and desperately needed union work rule reforms such as attempted in the Vergara lawsuit, make unconvincing their claims to care about results.

Any criticism of public safety unions should be in this context. Nonetheless, the case must be made that police and firefighter compensation in California has reached a level where at the least it is appropriate to replace their services whenever possible with less expensive solutions.

With respect to firefighters, an example of this can be found with private ambulance services which can, and often do, replace firefighter personnel to respond to medical emergencies. This solution can save municipalities millions […] Read More

Tom Steyer Proposes to Triple the Minimum Wage

Usually when billionaires run for political office, it is reasonable to expect they have a basic understanding of economics. In the case of presidential candidate Tom Steyer, however, one cannot make that leap of faith. Either Steyer has no understanding of economics whatsoever, which is extremely unlikely, or he does and does not care, or he is a pandering liar.

On February 9, speaking in South Carolina, Steyer said “he would call for a $22 per hour minimum wage if elected president.” This ups the ante on Steyer’s competitors in the Democratic presidential primary race, who are calling for an increase to $17 per hour.

Currently, the federal minimum wage is $7.25 per hour. If Tom Steyer were president, that rate would triple. Examining the consequences of such a move brings into sharp focus the dangerous absurdity of Democrat proposals. It offers additional reasons to vote for Republicans not necessarily because they are Republicans, but because they are not Democrats.

Shown on the chart below is the history of the federal minimum wage since it was first established in 1938. The first column shows the actual, nominal, minimum wage in each year the amount was raised. The middle column displays the consumer price index in each of those years. The column on the right then calculates what the minimum wage was historically, if expressed in 2019 inflation adjusted dollars.

As can be seen, if the minimum wage set back in 1938, 25 cents per hour, were expressed in inflation […] Read More

Newsom’s 2020-21 Budget – A Big Pie, But Empty Calories

Governor Newsom has unveiled his budget proposal for the fiscal year 2020-21, and it comes in at a whopping $222 billion. That’s up from $209 billion last year, and sharply up from a few years ago. Backing up a decade, the 2010-11 budget totaled $130 billion. What on earth could justify a 70 percent increase in spending in just ten years?

Shown below is the shocking growth in California’s state budget over the past forty years. The chart includes not only general fund spending, along with special funds and bonds, but also federal funds which are not included in the $222 billion total, but which are administered by the state and spent in California.

As can be seen, the growth hasn’t been uniformly up. There was a drop during the mild recession in the mid 1990s, another one in 2004-2005, and a plunge during the great recession that affected 2011 through 2014. But overall, spending growth over the past 40 years looks a bit like the proverbial hockey stick.

To have a fair discussion of spending growth in California, however, it is necessary to adjust for population growth and the impact of inflation. That is not a problem, since population data, CPI trends, and historical budgets are all easily found online. Back in 1977 California’s population was 21.9 million, and the CPI was 56.9. For the last five years, California’s population has hovered just under 40 million, growing by only a half million in […] Read More

Public Employee Strike Looms in Santa Clara County

With 2020 upon us, it appears likely that two unions representing Santa Clara County employees will be going on strike. Unless agreements can be reached, 3,000 members of the Registered Nurses Professional Association will strike, along with over 11,000 members of the SEIU.

When one considers the political leanings of the Santa Clara County Board of Supervisors, which tilt overwhelmingly pro-labor in one of the most liberal strongholds in the world, it seems inexplicable that negotiations have reached an impasse. Inexplicable, that is, until you review the financial situation confronting Santa Clara County.

To get started, have a look at the most recent publicly available consolidated balance sheet for Santa Clara County, showing the change in their assets and liabilities between their fiscal years ending 6/30/2017 and 6/30/2018.

As can be seen from this table (found on page 7 of Santa Clara County’s most recent CAFR), the county’s total assets increased by an impressive $891 million between 2017 and 2018. But the county’s total liabilities increased by an even more impressive $2.1 billion over the same period, nearly three times as much.

Digging in, it isn’t hard to see what happened. Santa Clara County’s finance department finally decided to accurately represent the size of their unfunded retirement obligations. They increased their net pension liability by $545 million, and they increased their OPEB (“other post employment benefits,” typically retirement health insurance coverage) liability by $1.0 billion.

Anyone whose dug around financials long enough knows that the […] Read More

The Boondoggle Archipelago

Across California, there is a growing string of islands, exquisite gems in the urban ocean. Dredged from the pockets of taxpayers, constructed by elite artisans, these pristine islands have been created at stupefying expense. But their beauty is seductive. Spend more!

Each time an island is completed, or even proposed, glowing reports are logged across the land. So fortunate are those who shall live on these islands! So wonderful are those who shall build these islands, and care for their inhabitants! What a magnificent, marvelous thing we have done!

Or have we? From deep within the ocean a seismic wave is building, triggered by reality and propelled by common sense. Because these islands, more properly referred to as homeless shelters, supportive housing, and “low income housing,” are far too small, and far too precious, to ever, ever accommodate every castaway that needs a roof over their heads. They will never offer the required land mass to solve the problem. Instead, history shall know them as California’s Boondoggle Archipelago.

The builders of the Boondoggle Archipelago hide behind laws they won’t try to change, and behind court rulings they won’t challenge, and happily follow the rules. Happily, because the rules are rigged to ensure that the vast majority of California’s homeless and low-income families shall remain forever adrift, and so long as there are castaways, there’s money for the builders.

A short cruise across the urban ocean from north to south, visiting various typical islands in California’s Boondoggle Archipelago, should offer ample […] Read More

The Cost to Taxpayers of Enhancing Sonoma County Employee Pensions

In the early 2000s, along with many other cities, state agencies, and counties in California, Sonoma County enhanced their employee pension benefits.

As of 6/30/2018, Sonoma County’s pension system had $2.7 billion of invested assets, but nearly $3.1 billion in actuarial accrued liabilities. To what extent is its $400 million unfunded liability attributable to the pension benefit enhancements? Put another way, how much have these enhancements cost Sonoma County’s taxpayers?

Just as it is impossible to know with perfect accuracy the amount of a pension fund’s actuarial accrued liability, it is impossible to precisely calculate the cost to taxpayers of Sonoma County’s pension benefit enhancements. There is enough data available in the financial statements provided by Sonoma County’s pension fund, however, to provide credible estimates.

To improve the credibility of these estimates, the assumptions made herein are designed to understate the costs. For example, the impact of the increased cost is not assessed until the year the enhancements were fully implemented. In the case of general Sonoma County employees, that was 2005, and in the case of public safety employees of Sonoma County, that was 2006.

Sonoma County’s original pension benefits were based on the typical annual percentage accrual, multiplied by years worked, with the total percentage multiplied by the final pension eligible salary to calculate the retirement pension. For example, up until 2005, Sonoma County’s general (non-safety) workers would accrue their pension benefit at a rate of 2 percent per year. An employee who worked 30 years would have […] Read More